"Very aggressive policy."

Over dinner on Tuesday night, that's what New York University economics professor Nouriel Roubini told me was required for a "U" shaped economic recovery "rather than a Japanese-like 'L' into oblivion. He puts the odds of a "U" at two-thirds and an "L" at only one-third, if these further policy actions take place. Such a voluble bear coming down in favor of a "U" should be welcome news to the crushed investment community.

Federal Reserve Chairman Ben Bernanke must have been eavesdropping on our conversation. The very next day, Bernanke did promulgate some "very aggressive action" indeed--another trillion dollars or so to be poured into the mortgage-backed and Treasury securities in a bold attempt to free the credit markets. Wall Street loved Bernanke's move, extending the stock market gains here and abroad and driving interest rates on Treasury securities and mortgage-backed bonds lower. Hope alights again for housing as mortgage interest rates have been driven down to 4.79%, which should help to thin the gargantuan inventory of unsold homes.

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Now it is time for Aggressive Action II from Treasury Secretary Timothy Geithner. It must be a decisive and clear creation of a "good bank/bad bank" arrangement to get rid of the albatross around the necks of Citigroup (nyse: C - news - people ), Wells Fargo (nyse: WFC - news - people ), JPMorgan Chase (nyse: JPM - news - people ) and Bank of America (nyse: BAC - news - people ), for starters.

Roubini believes it is crucial to break up the big banks into three or four parts each, so that they can be better managed. "If you're too big to fail," he says, "then you're too big, period." If Geithner comes through with a clear, aggressive, bold and easy-to-understand program for the banks, his star will rise, and so will the bank share-led rally in this bear market. All eyes are on Uncle Sam.

There is a wonderful precedent of how a "good bank/bad bank" solution can rebuild debilitated capital structures in financial institutions. In 1988, John Vogelstein, a brilliant partner at E.M. Warburg Pincus & Co., together with Wachtell Lipton law partner Martin Lipton, was able to restore stability to Mellon Bank and make a profit of $1 billion by separating the terrible assets from the promising ones. It was the first non-assisted recapitalization of a major commercial bank, and out of it grew one of the nation's top 25 bank holding companies. Mellon's bad assets were put into a bad bank at a discount of 25% to 30%, and over an extended period of time, the stream of income net of interest from these assets brought exactly the value that Vogelstein had predicted. Warburg Pincus made $1 billion on its 20% interest from a bank that was losing $300 million on a balance sheet of only $750 million.

Mr. Geithner, please note that Mr. Vogelstein is still affiliated with Warburg Pincus and can be reached at (212) 878-0601.

Geithner's Financing Fiasco

Treasury's plan to finance asset sales may not be enough.

WASHINGTON, D.C.--Treasury Secretary Timothy Geithner says he wants to involve private investment in the next phase of the government's efforts to stabilize the financial system. Doing so might not be as easy as he thinks.

The creation of a so-called "Public-Private Investment Fund"--a way to remove toxic assets from banks' balance sheets--is one of the few kernels of new information that Geithner revealed Tuesday while unveiling the Treasury's plan to bolster the financial sector. Details are sketchy.

On the surface, it seems like a pretty slick idea. Since the government cannot figure out how to value these assets, they will entice private investors to do so. One way to avoid the valuation problem is to put it on somebody else's shoulders.

Of course, some incentive must be provided to encourage investors to take on the task of valuation. That's no small task.

"If the pricing were easy, someone would have done it," says Donald Ogilvie of the Deloitte Center for Banking Solutions and a former head of the American Bankers Association.

Treasury officials have indicated they'll provide only the financing for investors to buy these securities. What Uncle Sam won't offer: guarantees on those assets or a share in any losses.

That means that investors still face the enormous risk of mis-pricing the assets. Ogilvie worries that overpaying could lead to losses in the financing the government provides.

The Treasury wants to create a fund worth $500 billion to $1 trillion. To do that, it will need to provide relatively inexpensive financing so that investors won't quickly burn through most of their cash to buy the securities.

Treasury Secretary Timothy Geithner said Tuesday the new administration will wage an aggressive two-front battle against the worst financial crisis in seven decades with commitments that could total up to $2 trillion.

But investors appeared wary of the government's latest plans. The Dow Jones industrial average plunged about 300 points in afternoon trading as financial stocks led the market lower, reflecting Wall Street's growing concerns about the government's ability to revive the banking industry.

The efforts were part of the government's major overhaul of the widely criticized financial rescue program.

The Federal Reserve said it would expand the size of a key lending program to as much as $1 trillion from $200 billion. The program, which has yet to begin operations, is designed to boost resources for consumer credit and small business loans.

The Fed said the program would be expanded to cover the troubled commercial real estate market and certain residential mortgages.

"Right now critical parts of our financial system are damaged," Geithner said. "Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change."

Geithner said the loss of 3 million jobs last year, and another 600,000 just last month underscored the urgency for government action.

NEW YORK (CNNMoney.com) -- President-elect Barack Obama is expected to nominate New York Federal Reserve President Timothy Geithner for Treasury Secretary.

Two sources close to the transition told CNN on Friday that Geithner is "on track" to be offered the post. An announcement is expected within days.

Geithner has played a central role in the government's efforts to wrangle the credit crisis, which has damaged markets and economies worldwide. While a number of those efforts have been controversial, Geithner remains a well-regarded figure from Wall Street to Washington.

In the wake of the Geithner news, stocks soared in late-day trade on Friday. The Dow closed nearly 500 points higher, pushing back above 8,000, after a dismal week.

Many believe the post of Treasury Secretary will be the most important in the next administration's cabinet. And indeed, Geithner would inherit one of the toughest jobs in Washington.

Geithner would be charged with restoring stability to the financial markets, the banking system and the housing sector through oversight of the controversial $700 billion financial rescue package, of which about half is still available for use at the discretion of the Treasury Secretary.

He would also be chief overseer of the international push to reform the regulatory regime for the financial system, which, like a sputtering lemon on the autobahn, has been severely outrun by 21st century developments in financial practices and products.

His overarching task: Ensure that what happened to world markets and economies in the fall of 2008 never happens again.

In the span of just two months, Americans and investors around the world have lost trillions in wealth, economies have fallen into recession like dominoes and the current prospects for recovery are insufficient to offer comfort. All the while, the foreclosure beat goes on, with roughly 165,000 more Americans losing their homes in September and October, bringing the total to 936,000 since August 2007.

Expect Geithner, if nominated, to roll up his sleeves and get busy even before his confirmation hearings with Congress, which could come before Inauguration Day.

Henry Paulson, the current Treasury Secretary, has indicated that he's reserved office space for his successor so that the Bush and Obama Treasury teams can work closely to insure a smooth transition during what has become the most tumultuous period for the U.S. financial system and economy in recent history.

Often described as brilliant but modest, Geithner, 47, has held for the past five years one of the most powerful, if little known, jobs in the country as president of the New York Federal Reserve. His post at the New York Fed is essentially one of Wall Street watchdog. He also sits on the Federal Open Market Committee, which sets the country's monetary policy.

Geithner was the U.S. Federal Reserve's point person on the rescue of Bear Stearns and American International Group (AIG, Fortune 500) as well as in the failed talks to keep Lehman Brothers out of bankruptcy.

Lehman's demise is blamed by many for the freeze up in global credit markets that followed immediately afterwards.

He is typically cited as one of the few people on or off Wall Street who can begin to untangle the murky and unregulated market of credit default swaps, the so-called "side bets" that felled AIG. He has pushed for greater transparency and the creation of a central clearinghouse where credit default swaps could be recorded and secured. And, according to Fortune, he has gotten informal promises from banks that they would participate.

Prior to joining the Fed, he served as director of policy development and review at the International Monetary Fund. Before that, he was the under secretary of the Treasury for international affairs under Treasury Secretaries Robert Rubin and Lawrence Summers.

His is an international background, which would come in handy at a time when G-20 governments have pledged to coordinate efforts to dig out their economies and markets. Geithner has lived in China, Japan, Thailand, India and East Africa. He got his bachelor's from Dartmouth in government and Asian studies and his master's in international economics and East Asian studies from Johns Hopkins School of Advanced International Studies.

Indeed, during his years at the Treasury, he played a central role in the agency's handling of international crises. A profile of him in The New Republic asserted that without his influence "the '90s might have looked very different ... [His role made him] Treasury's first-responder to foreign-currency emergencies, like the kind that plagued East Asia throughout the decade."